US oil prices crash to their lowest level in over 21 years as storage runs out

Offshore staff

NEW YORK CITY – US oil prices fell to their lowest level in more than 21 years on Monday, with crude storage facilities filling rapidly as the coronavirus pandemic continues to crush demand.

As reported by CNBC, the May contract for US West Texas Intermediate (WTI) futures fell to $12.43/bbl on Monday, down more than 31%. That is its lowest level since March 4, 1999.

The May contract of WTI is set to expire on Tuesday, with the June contract of WTI last trading at $23.58/bbl, almost 6% lower. Futures contracts typically converge with spot prices as they near expiry.

Meanwhile, international benchmark Brent crude stood at $26.63/bbl on Monday, around 5% lower for the session.

It comes amid heightened concern that the volume of oil held in US storage is rising sharply, with the coronavirus crisis compounding the problem by dramatically reducing consumption.

“The current forward crude oil curves for Brent and WTI are now in very deep contango, but the contango is also very front-loaded,” Bjarne Schieldrop, chief commodities analyst at SEB, told CNBC via email. A contango market implies oil traders believe crude prices will rally in the future, encouraging them to store oil now and to sell at a later date.

“The curves are saying we have a big problem with the storage of oil right now,” Schieldrop said, noting the general market view seemed to be that the global economic trough and the oil demand trough would be April 2020.

In the second half the year, he continued, the problem of storage capacity should “vanish rapidly” because oil demand is expected to rebound strongly, while inventories will draw down sharply. “This is why the Brent crude average oil price for 2021 is holding up so well at $40/bbl,” Schieldrop added.

04/20/2020